sebi:WTM/MSS/ISD/10/09
This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.
Facts / Headnote
Violation found; 45-day debarment from securities market and disgorgement with interest totaling Rs.90,03,484 ordered
Provisions invoked
- s. 11B
- s. 19
Regulations
- Reg. 11
- Reg. 3(c)
Parties
- Mr. Shadilal Chopra (PAN: AAAPC6067F)
Holding
The noticee violated Regulations 3(c) and 4(1) of PFUTP Regulations by fraudulently cornering employee quota shares of Atlanta using 11 employees as conduit and selling them for unlawful gain. He was restrained from the securities market for 45 days and directed to disgorge Rs.66,20,209 with Rs.23,83,275 interest, totaling Rs.90,03,484.
Full text
Page 2 of 8 off-market transactions. The SCN, therefore, alleged that the noticee fraudulently cornered the employee quota shares of Atlanta by using the employees as conduit. It also alleged that these acts of noticee were in violation of Regulation 3(c) and 4(1) of PFUTP Regulations. Accordingly, it called upon the noticee to show cause as to why suitable directions under Section 11B of the SEBI Act read with Regulation 11 of PFUTP Regulations, including directions to disgorge the amount/ profit made by him from the sale of the said shares, be not issued against him.
Page 3 of 8 5. The noticee has emphatically submitted that the employees, who were entitled to the shares, did not have money while he was having surplus funds. Hence he entered into a joint venture with the employees with the following terms: ¾ “The application in employee reservation portion shall be made in the employees name as statutorily required. ¾ Employees will transfer shares to my demat account on allotment. ¾ After listing of Atlanta shares, I shall sell the shares within three months at my discretion. ¾ Employee will be entitled to 25% of the profit after deduction of interest cost @ 9% per annum for the actual number of days of investment. However, in case of loss, I shall not be entitled to any interest.” He has asserted that he did a normal financing transaction. In normal circumstances, even a company coming out with an IPO provides finance to its employees to apply for its shares. The banks and financial institutions also lend money for making applications in IPOs, including under the employee reservation portion. Hence the gains made by him are legitimate.
Page 4 of 8 7. I find that the SCN has delineated the transactions neatly, as presented in Para 5 above, along with evidence (bank accounts, demat accounts, cheque numbers, dates, etc.) of movement of funds and shares between the accounts of the noticee and of the 11 employees. The noticee has absolutely no disagreement on these transactions. I, thus, conclude that the noticee provided funds to the 11 employees for applying for shares under the employee quota, received the shares allotted to each of these employees at issue price through off-market transactions, received the refund of balance money from each of these employees, sold the shares received from employees through market and made a gain of Rs.66,20,209.
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Source: SecMarx — sebi:WTM/MSS/ISD/10/09. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.